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Old 29th November 2011, 10:54   #31
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

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Originally Posted by vivekiny2k View Post
We are already seeing this effect in USA where outsourcing was supposed to move US labor force to more productive jobs, but not everything seems to be going as planned.
Outsourcing and its impact is a huge and separate debate my friend .

In short the problems in USA are multifold (not just restricted to retail) and mostly they start from being irresponsible as far as Macro economic decisions are concerned from the federal government.
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Old 29th November 2011, 10:59   #32
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

We have two kinds of markets. One where things are sold at wholesale price and the other at retail price. The local stores buy products from the wholesale market and sell it with a margin at retail market. From the consumer's perspective access to the wholesale market is very limited at the moment and hence we depend on the local retail stores.
FDI in retail could bring the wholesale market closer to the consumer. Will this affect the local retail stores? To some effect yes, because
a) They lose some consumer base
b) To sustain in business they have to provide value add services like Home Delivery, credits etc
c) Cut-throat pricing and reduction in profit margin

From the consumer perspective it is a win-win situation. I believe the ones who would be mostly impacted are the wholesale dealers. If the Walmart's and the Costco's procure directly from the producers at a better rate than the current whole sale dealers and sell it with less margin to the consumers and let the current whole sale dealers as subcontractors, I don't see a problem with the FDI in retail.

As long as greed doesn't play a role it's good. Things go bad when only one party wants to take all.
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Old 29th November 2011, 11:28   #33
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

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Originally Posted by rohan_iitr View Post
It is for this very reason that I never visit the nearby grocey stores.

I do all my grocey shopping from big malls like Spar, Star etc or other branded stores like Reliance Fresh, Foodworld, NIlgiris etc. When we purchase any item from these malls/branded stores, we get a proper receipt and hence we can be sure that the sales tax paid by us is reaching the government.

When was the last time you local kirana store gave you a receipt ? Never ? You pay the sales tax (included in the MRP) to the kirana store, and he simply pockets it. The taxes paid by us never reaches the government.

These kirana stores deserve to shut down.

Rohan
Hmm, usually the sales tax is already paid on these items by the distributor or the company, this is only a case of resale, and therefore there is no sales tax payable by the shopkeeper. So, irrespective of whether he gives you a bill or not, the sales tax is already being paid to the government. What the government does with it is another matter altogether.

The only tax evasion here is if the kirana shop chap does not declare his income correctly, and thereby evades income tax, but well, even the biggies use various loopholes to evade taxes, so in this case, I think your apprehension on tax evasion is misplaced.
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Old 29th November 2011, 13:01   #34
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

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Consider this. The price a farmer gets for wheat has not changed more than 10% in past 5 years. But the price you pay for flour has gone up 2-fold.
+1 to this. My family back in my home town still in agriculture and the price on which they sell things like wheat, rice etc has not changed much, not even 10%.
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Old 29th November 2011, 13:06   #35
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

Being part for the Retail industry for last 12 yrs , am very much for FDI in retail,Reasons being;

1) Large scale employment at Tier 1 & 2 cities / towns and at all levels.Right from matriculates / grads / mgmt grads etc. There is whole lot of auxiliary employment generated thru other functions of retail (carpenters / electrician / a/c mech / security guards / warehouse packers etc. / logistics)
2) Salaries offered is also decent esp at Tier 2 towns.The Salaries in retail is comparable to industry best now than what it was 10 yrs ago
3) The scale of backward integration ensures infrastructure development for agri products viz., cold storage / fair price for farmers / employment generation .The amount of wastage due to poor processing centers is very huge . we hardly consume 50% of our production .
4) the quality of products sourced from other countries or pdts exported from here are far more superior than what is available for us . eg: visit any of Health & glow and see the quality of ear buds of Guardian Pvt. label , it is amazing . We inspite of paying more for Johnson&johnson we will not get that quality.
5) In organized retail due to high volume purchase , end consumer gets better deals and more VFM.The operational efficiency is not even at 20% compared to more developed retail markets.


Lastly mom & POP stores will contuine to co-exisit since they will also upgrade to customer requirement and also our consumption is still small and yet to reach that of other countries.
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Old 29th November 2011, 13:34   #36
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

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Originally Posted by rohan_iitr View Post
It is for this very reason that I never visit the nearby grocey stores.

I do all my grocey shopping from big malls like Spar, Star etc or other branded stores like Reliance Fresh, Foodworld, NIlgiris etc. When we purchase any item from these malls/branded stores, we get a proper receipt and hence we can be sure that the sales tax paid by us is reaching the government.

When was the last time you local kirana store gave you a receipt ? Never ? You pay the sales tax (included in the MRP) to the kirana store, and he simply pockets it. The taxes paid by us never reaches the government.

These kirana stores deserve to shut down.

Rohan
How many doctors have you seen giving you receipts, even the biggest ones! Only places where you get receipts are big hospitals. If you go to any doctors private clinic I doubt you'll get any receipt, even if you ask for it. There are similar other professions, like lawyers, architects etc. Nobody gives any receipts. Thats not a valid reason to hate them. People in India (for that matter everywhere in the world) love evading taxes.

Anyway this thread is not about tax evasion. Its about problems that FDI can bring, along with the benefits. One big problem debated about is these retail stores procuring their stuff from other countries. That will hurt local producers here. That I feel is a very genuine concern.
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Old 29th November 2011, 14:10   #37
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

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Originally Posted by joslicx View Post
One big problem debated about is these retail stores procuring their stuff from other countries. That will hurt local producers here. That I feel is a very genuine concern.
If you look at it from pure economic angle its right thing to do. You as a customer should be allowed to buy stuff from where ever its cheapest available (if quality levels are equivalent) and the same should be applicable to a business.

There is a side effect of this though (and this is where US went wrong). Today lets assume that the whatever is produced in India is cheaper so retailers would want to procure food and other stuff locally, but lets (hypothetically) assume in the long run the produce gets more expensive (so as to become more expensive then lets say Sri Lanka) then the retailers would want to import stuff from outside.

In the long run farmers in India would then see value to move to a different crop/business as there are cheaper food stock available in a neighboring country. This would eventually kill large scale agriculture in India. So we then would purely be a import driven economy (We import everything as producing here is more expensive then importing it from outside).

The problem comes when the cheaper imports either turn expensive, or are no longer available (i.e. shortage of supply) and as we no longer produce anything the prices skyrocket. (This is exactly what has happened in US, most of the things are imported from China and US does not produce anything significant anymore).

For this very reason govt is putting in a constraint that 30% of all goods needs to be locally procured hence ensuring that the local farmers continue to see value in producing crops that they are good at and we dont completely depend on external agriculture products for our survival.

Last edited by mayankjha1806 : 29th November 2011 at 14:13.
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Old 29th November 2011, 16:55   #38
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

Quote:
Originally Posted by joslicx View Post

Anyway this thread is not about tax evasion. Its about problems that FDI can bring, along with the benefits. One big problem debated about is these retail stores procuring their stuff from other countries. That will hurt local producers here. That I feel is a very genuine concern.
Products which are cheaper abroad are already procured by small time shops from China etc.,
Go to your local Kirana store around diwali. Where do you think those toys for crackers are made. Or during holi you will find local markets full of chinese water cannons.
This is a very silly argument. If something is cheaper in China, even local wholesalers will import from china.
If its hurting local manufacturing, the gate is customs(anti dumping duties, duties on products etc.,). As long as somebody is legally procuring stuff from abroad, its not an issue.
Remember, your local store does not go to manufacturer. The wholesaler goes to mfr. They are big enough to source from outside. So a big company is just another retailer. Instead of setting up shop in Sadar Bazaar, he as come to your doorstep.

For example, there are mobile stores owned by small shopkeepers in all cities. Where do they get their stuff? China of course, and that goes for stuff like headsets, earphones and small items which are manufactured in India too(or were manufactured here till recent past).

Last edited by tsk1979 : 29th November 2011 at 16:58.
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Old 29th November 2011, 18:35   #39
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

'We will all be slaves to MNCs,' says Saravana Stores founder - Rediff.com Business

Straight from the horse's mouth as to the different ways FDI in retail will "kill" domestic business and make us "slaves". Point to note is the monopoly on seed prices.

Saravana Stores is a Chennai institution
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Old 29th November 2011, 18:58   #40
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

FDI in retail will mean the honest indian farmer will now get a fair price from the MNC's sourcing team as they will buy directly from the farms.
So where does that leave the politically backed middle-men who "sources" from the farmers at the government's ridiculous rates and then fleeces the farmer by taking his cut money. No wonder the politicians are jittery about FDI in retail.
And kirana stores will never run out of business - if you have to shop for some daily needs related small items will you always go to the supermarket. YOu'll probably potter down to the corner store or send your "bai" to get those vegetables.
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Old 29th November 2011, 19:01   #41
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

Also read that 100% FDI is now being permitted in single-brand retail.

Won't some auto accessories store, like HALFORDS (of UK) take this opportunity to come in and offer genuine good stuff at honest prices? Can't wait ....and what about the kit car makers ? Will they be treated as single-brand retailers ?

Last edited by arjab : 29th November 2011 at 19:02. Reason: typo
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Old 29th November 2011, 19:11   #42
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

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Originally Posted by arjab View Post
So where does that leave the politically backed middle-men who "sources" from the farmers at the government's ridiculous rates and then fleeces the farmer by taking his cut money. No wonder the politicians are jittery about FDI in retail.
And kirana stores will never run out of business - if you have to shop for some daily needs related small items will you always go to the supermarket. YOu'll probably potter down to the corner store or send your "bai" to get those vegetables.
You are wrong. Farmers do not sell at govt rates. they are forced to sell much lower. With this atleast they will start buying produce at MSP. This will spell doom for middle-men, and rightly so.
As for local shops there will be some impact, but then how much impact did stores like Big Bazaar etc., have? I think a lot of "opposition" will come from domestic supermarket chains, who now cannot do bait and switch.

For example, many stores first give freebies on many products. Then slowly as they corner market, they start giving preference to their house brands. People used to monthly shopping will pick up house brands instead of other brands as they do not want to make two runs to supermarket.

With global chains, there will be more competition, and this monopoly of single supermarket chain in many cities will go away
Quote:
Originally Posted by arjab View Post
Also read that 100% FDI is now being permitted in single-brand retail.

Won't some auto accessories store, like HALFORDS (of UK) take this opportunity to come in and offer genuine good stuff at honest prices? Can't wait ....and what about the kit car makers ? Will they be treated as single-brand retailers ?
Yes, its high time we got products at actual prices as opposed to middleman-commission prices. The Middleman has to go away.
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Old 29th November 2011, 19:28   #43
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

One also needs to look at local vs foreign debate. While the fear is it drains money out of the country, one needs to keep in mind that after paying employees, incurring costs and paying taxes, a small portion of earning goes overseas as profits. In number it might sound big like in millions, but it's litle compared to its contribution to local society, specially the technological and logistical knowledge.

Another analogy is toyota and honda owned plants in US which theoretically drain money back to Japan but have improved the whole auto sector in US.

If walmart can teach other retailers how to be more efficient, in the lon run it will help our overall economy. The key thing is this particular change is about local markets. Had it been exports back to US, that would make things complicated.

One major risk I see is if china piles up indian debt by increasing it's exports thru walmart, it will get an upper hand in everything. US can flex it's arms, India cannot. An attractive retail industry is a disaster for a population in terms of managing personal expenditure.

Quote:
Originally Posted by mayankjha1806 View Post
Outsourcing and its impact is a huge and separate debate my friend .

In short the problems in USA are multifold (not just restricted to retail) and mostly they start from being irresponsible as far as Macro economic decisions are concerned from the federal government.
Yes, it was just an analogy to explain how a good economic theory or plan can fail miserable because reallocation of resources is not as easy.
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Old 29th November 2011, 19:31   #44
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

We already have big local chains like Big Bazaar, Reliance Fresh etc Why are they not able to procure directly from the farmer? AFIK they tried and miserably failed. Now you say MNCs are capable of doing this? How exactly?The reality is farming is totally unorganised in India with highly fragmented land holding. Do you think that Walmart or any one can directly approach and procure from millions of small scale farmers whose produce may be few hundreds of kilos. So they also will either go to established middlemen or import.
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Old 29th November 2011, 19:48   #45
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

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Do you think that Walmart or any one can directly approach and procure from millions of small scale farmers whose produce may be few hundreds of kilos. So they also will either go to established middlemen or import.
That sounds like we really have nothing to worry about. they will come, fail, and leave.
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